The merger was approved by regulators in China on the condition
that Google's Android software would remain free for other hardware
makers for at least five years. This deal is the biggest in
Google's 13-year history and among the 136 acquisitions it has made
since it went public in 2004, which have cost the company $9.1
billion in total.

Google has stated that Motorola would continue to be run as a
separate unit, with its phones based on the Android OS. Google's
Dennis Woodside would be the new CEO of the business.

We do not think that Google would be interested in going for a
software-hardware integrated approach, since this would likely pull
down its margins. Instead, Google could sell or spin off the
hardware business some time in the future. A few sources stated
that last month Google was heard talking to Chinese giant Huawei
about selling the handset division, which clearly implies that the
acquisition was made purely to shore up Android's patent
portfolio.

Given Motorola's 17,000 existing and 7,500 pending patents, we
believe the deal will prop up Google's patent portfolio in the
mobile space, which has lagged peers such as Apple,
Microsoft Corp.
(
MSFT
) and other technology giants. We think this would lend stability
to the Android ecosystem and defend phone makers that use Android
against litigation.

Google's immediate next steps are not known, but we expect
certain layoffs or restructuring with the Motorola deal.

Google shares therefore carry a Zacks #3 Rank, implying a Hold
rating for the near term.